The U.S. Commodity Futures Trading Commission moved forward on five rulemakings at an open meeting on April 14, the first since the U.S. government switched to a work-from-home policy to contain the spread of the novel coronavirus. The agency's five commissioners discussed the rulemakings via a conference call, and the discussion was broadcast to the public via the CFTC's website.
The five rulemakings discussed during the meeting, all of which were approved unanimously on 5-0 votes, consisted of the following:
- Proposed Rule: Amendments to Part 190 Bankruptcy Regulations
- Proposed Rule: Amendments to Compliance Requirements for Commodity Pool Operators on Form CPO-PQR
- Proposed Rule: Amendments to Part 50 Clearing Requirements for Central Banks, Sovereigns, IFIs, Bank Holding Companies, and CDFIs
- Final Rule: Amendments to Part 23 Margin Requirements for the European Stability Mechanism
- Final Rule: Amendment to Part 160 Consumer Financial Information Privacy Regulation
At the start of the meeting, CFTC Chairman Heath Tarbert vowed to press forward with his rulemaking agenda despite the disruptions caused by the coronavirus. He pledged to focus on rules that have "effectively been completed by commission staff" in the near-term and to "finalize outstanding proposals arising during my tenure as chairman or before."
The two Democratic commissioners—Rostin Behnam and Dan Berkovitz—cautioned that market participants are so preoccupied with the disruptions caused by the coronavirus pandemic that they may not be able to respond to the agency's proposals within the usual timeframe. Tarbert acknowledged this concern and agreed to review comments received after the deadlines if feasible.
Updates to bankruptcy regime
This proposal, which will be published for a 90-day comment period, would revise Part 190 of the CFTC's rules, which covers the bankruptcies of futures commission merchants and designated clearing organizations. Robert Wasserman, the chief counsel in the CFTC's clearing and risk division and resident expert on bankruptcy issues, described the proposal as the first major overhaul of Part 190 in 37 years. He noted that the proposal draws heavily from the work of a subcommittee of the American Bar Association as well as the "lessons learned" from the bankruptcies of MF Global, Peregrine Financial Group, and a handful of other FCM bankruptcies.
The CFTC commissioners highlighted several key features of the proposal during the discussion. These include a new section addressing the potential failure of a clearinghouse, more discretion for bankruptcy trustees, a clarification on how letters of credit should be handled, the addition of virtual currencies to the definition of physically delivered property, and an overall effort to clarify the core concepts of Part 190 and address ambiguities that have arisen in past experiences with bankruptcies.
"I can't stress how important it is to make sure that our insolvency regime is up to date because we never know when we may need to use it," commented Tarbert. "A tremendous amount of work has gone into [this proposal], and when I really think about what stands out as why this proposal is so important, I think number one is clarity for customers and creditors. Clarity is absolutely critical for an insolvency regime, and the fact that we're now updating it systematically for the first time in 37 years is really important so that members of the public, players in the financial markets as well as regulators really have an understanding of what would happen under our Part 190 if we had an insolvency of an FCM, and also, of course, for the first time, a DCO."
Simplification of CPO reporting requirements
The CFTC agreed to issue a proposal to simplify compliance requirements for commodity pool operators by streamlining form CPO-PQR. The commission unanimously supported both the specific proposal, which will reduce the overlap with similar reporting requirements enforced by the Securities and Exchange Commission, as well as broader efforts to rethink agency data collection under Commissioner Dawn Stump's data protection initiative.
Amendments to Part 50 clearing requirements and European Stability Mechanism margin requirements
Two related rulemakings -- proposed amendments to Part 50 clearing requirements and a final rule amending Part 23 -- were discussed together in the context of cross-border harmonization and reducing regulatory fragmentation. The Part 50 amendments would codify existing clearing exemptions for swaps entered into by certain central banks, sovereign entities and international financial institutions, and the final rule amending Part 23 changes the definition of “financial end user” to exclude the European Stability Mechanism from margin requirements.
Consumer financial information privacy
The five commissioners approved a final rule protecting the privacy of consumer information with almost no discussion. Tarbert explained that the final rule establishes requirements for three types of safeguards to protect the security and confidentiality of customer information.
- Statement of Chairman Heath P. Tarbert in Support of Long-Awaited Updates to the CFTC’s Bankruptcy Regime
- Statement of Support by Commissioner Quintenz Regarding Part 190 Bankruptcy Regulations – Notice of Proposed Rulemaking
- Statement of CFTC Commissioner Rostin Behnam Regarding Part 190 Bankruptcy Regulations
- Statement of Commissioner Dawn D. Stump Regarding CFTC Open Meeting on April 14, 2020
- Statement of Commissioner Dan M. Berkovitz on Proposed Amendments to CFTC Bankruptcy Regulations
- Statement of Chairman Heath P. Tarbert in Support of Revising Form CPO-PQR
- Statement of Support by Commissioner Brian Quintenz Regarding Amendments to Compliance Requirements for Commodity Pool Operators on Form CPO-PQR
- Concurring Statement of CFTC Commissioner Rostin Behnam Regarding Amendments to Compliance Requirements for Commodity Pool Operators and Form CPO-PQR
- Statement of Commissioner Dan M. Berkovitz on Proposed Rule to Amend Form CPO-PQR Reporting Requirements for Commodity Pool Operators
- Statement of Chairman Heath P. Tarbert in Support of Proposed Amendments to the Part 50 Clearing Requirement
- Statement of Chairman Heath P. Tarbert in Support of Margin Relief for the European Stability Mechanism
- Statement of Support by Commissioner Brian Quintenz Regarding Amendments to the Clearing Exemption for Swaps; the Final Rule Excluding the European Stability Mechanism from CFTC Margin Requirements; and Related No-Action Relief
- Statement of Commissioner Dan M. Berkovitz on Final Rule Excluding the European Stability Mechanism from the Definition of Financial End User
- Statement of Commissioner Dan M. Berkovitz on Proposed Amendments to Swap Clearing Requirement Exemptions
- Statement of Chairman Heath P. Tarbert in Support of Protecting Customer Records and Informationa